Bellevue Healthcare Strategy (Lux)

After showing signs of a recovery in the previous month, global stock markets came under renewed selling pressure in August. The global MSCI World Index retreated 1.9% (in CHF) and the healthcare sector didn't fare any better: The MSCI World Health Care Index was down 3.8% for the month and the Bellevue Healthcare Strategy Fund (Lux) lost even more ground (-5.1%, I shares). Jerome Powell's blunt words about the Fed's future monetary policy led to a sharp increase in market volatility. Passage of the "Inflation Reduction Act”, which includes measures to lower US drug prices, created even more headwinds for biopharmaceutical stocks that have substantial exposure to the US market. The ongoing reporting season was generally good for the 24 companies in the fund's portfolio that published earnings announcements during the month under review. However, because of the volatile market environment, any disappointments led to brutal selloffs. That was the case for two of the stocks in the portfolio. Swiss hearing aid manufacturer Sonova (-24.1%) did not release results, but it had to lower its guidance for the current financial year. The guidance cut was primarily blamed on higher input costs and to some extent changes in consumer spending on premium products. Horizon Therapeutics (-26.9%), a US biopharmaceutical company, reported disappointing Tepezza sales around the same time that a rival drug manufacturer published positive Phase II data on a competing product. Meanwhile positive quarterly figures, such as those from the Swiss laboratory supplier Tecan Group (+7.3%) and the Australian digital health company Pro Medicus (+10.7%) were "rewarded" with more modest gains on the stock exchange. US health insurer Molina Healthcare (+5.4%) already presented good half-year figures in July and August brought more positive news flow for the company. The California State Department of Health Care Services awarded five-year contracts under a competitive procurement for commercial managed care plans beginning in 2024 and Molina Healthcare scored particularly well.

The investment process for the Bellevue Healthcare Strategy Fund resembles the rules-based investment process that Bellevue has successfully applied since 2007. In this approach, the 40 most attractive stocks in the healthcare sector worldwide are selected every six months. The Bellevue Healthcare team screens about 600 of the 4000 listed companies in the healthcare sector worldwide based on four quantitative criteria (PEG valuation, price/sales, sales growth and EBITDA/sales) and four qualitative criteria (assessing the company's management, product pipeline, operating risks and country-related risks). The ten most promising stocks from four different regions – Western Europe, North America, Japan/Australia and emerging markets – are selected. The maximum weighting of the region with the highest overall score, which is usually North America, is capped at 35% during the periodic rebalancing, which increases the emphasis given to emerging markets. Companies with rich valuations and low growth rates will rarely be selected for the portfolio. Mid cap stocks have typically represented 60-80% and the Asia region approximately one-third of the portfolio. Pharmaceutical stocks are clearly underweighted compared to the MSCI World Healthcare Index. Bellevue has applied this investment approach since April of 2007 and it is used to compile the Adamant Global Healthcare Index.